Adobe reported earnings slightly above Street forecasts and estimates as the company continues to work hard to integrate generative artificial intelligence into its wide range of content creation and marketing tools.
Adobe shares fell 2% in late trading following the announcement. The stock is up 64% year to date.
Adobe CFO Dan Durn claimed in an interview with Barron’s that it was “an overwhelming quarter from top to bottom.” He noted that revenue beat the midpoint of the forecast by $40 million, while operating margin of 46.3% beat the 45.1% implied in the company’s forecast.
And he noted that Adobe did this while incurring the significant costs of generative AI computing associated with the launch of its Firefly suite of AI tools, including a popular text-to-image feature. Since launching earlier this year, Adobe customers have created two billion images using Adobe AI tools at no cost to users.
For the fiscal third quarter ended Sept. 1, Adobe reported revenue of $4.89 billion, up 10% year over year or 13% at constant currencies, slightly above the company’s forecast range of 4.83 to 4. 87 billion US dollars and the Street consensus forecast is: 4.87 billion US dollars. On an adjusted basis, the company earned $4.09 per share, beating its target of $3.95 to $4 per share and the Street consensus of $3.98. Under generally accepted accounting principles, the company earned $3.05 per share.
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The company said its digital media segment revenue was $3.59 billion, up 11%. Digital Experience revenue was $1.23 billion, up 10%.
“With innovations across our product portfolio, we are ushering in a new era of AI-powered creativity worldwide,” Adobe CEO Shantanu Narayen said in a statement accompanying the earnings release. “The recent launches of Firefly, Express, Creative Cloud and GenStudio bring the magic of Adobe to millions of users.”
Adobe’s results come just a day after a flurry of announcements from the company that included expansions to its AI software lineup as well as updates to its strategy for monetizing its work in this area. The company has launched an enterprise version of Firefly as well as a plan to measure usage of AI features, giving customers the option to pay more for additional AI capacity. Adobe also announced plans to increase prices for various creative cloud plans by 8% to 10% starting November 1 to reflect the costs associated with creating generative AI content.
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For the November quarter, Adobe expects revenue between $4.975 billion and $5.025 billion and adjusted earnings of $4.10 to $4.15 per share. Consensus Street estimates were for revenue of $5 billion and earnings of $4.06 per share. The company expects digital media revenue to be between $3.67 billion and $3.7 billion for the quarter, with digital experience revenue ranging from $1.11 billion to $1.13 billion.
Durn noted that the price increases will result in a slight increase in fourth-quarter results, but will result in a more significant increase in the coming fiscal year and beyond. He added that most individual users have one-year contracts, while enterprise customers are generally covered by three-year contracts. The price increases, he says, “will have an impact on the market over time.”
Write to Eric J. Savitz at [email protected]